Mid-Market Tech Companies are Moving Operations to Lower-Cost Markets

SMBs can more easily and cost-effectively expand their workforce, while entrepreneurs can get businesses off the ground with less capital.

And being a “big fish in a small market” also can offer competitive advantages in attracting labor and retaining a strong workforce.

Even beyond cities like Austin and Atlanta, tech companies are finding welcoming homes in places like Raleigh-Durham, Denver, Charlotte, Philadelphia and Houston.

According to commercial real estate services firm CBR, the cost for running a typical 500-person tech firm in and around Silicon Valley runs more than $56 million per year, compared to between $40 million and $42 million in many of these lower-cost cities.

Other markets can offer even more value. App development firm Metova recently invested $2 million in its operations in the rural town of Conway, Ark., doubling its staff to 160. Metova, which works with firms such as Yelp, Dropbox, Microsoft and eHarmony, credits hiring software engineers and developers in more cost-effective regions as a critical component of its growth. The company is headquartered in Franklin, Tenn., and also has offices in Augusta, Ga., Pensacola, Fla. and Seattle, Wash. “You don’t have to go to Austin, Boston, the Bay Area or Seattle to find the talent anymore. I think a CEO coming to Arkansas will find [that] the technology and workers are here. You get the talent you need with a different cost of living,” said Smith.

“To be able to scale a business like ours in the northeast is a difficult proposition from both the ability to find talent, and be able to make it cost effective for us and our clients.”

Mark Carleo, president and CEO of Boston-headquartered Elyxor, Inc., says they’ve found “impressive” talent and state commitment in Arkansas. In August, the company announced they would hire 45 new employees in Little Rock’s Argenta District to support clients around the globe. Carleo said they hired their first engineer in Little Rock two years ago and have been growing ever since. “To be able to scale a business like ours in the northeast is a difficult proposition from both the ability to find talent, and be able to make it cost effective for us and our clients,” says Carleo.

According to a cost of living calculator at CNNMoney.com, a $67,000 salary in Little Rock can offer the same standard of living as a $100,000 salary in Boston. Those tremendous savings are spurring tech firms to look outside of major tech hubs.

Like many in the industry, Smith credits Arkansas’ growing IT sector to educational initiatives that include coding classes in high schools and an emphasis on tech in universities. The presence of Walmart, which has its global headquarters in Bentonville, Ark., has also played a role. Smith said that with its growing share in e-commerce, Walmart has moved beyond solely being a retailer and toward also being “a huge technology company.” Alongside the company’s 14,000 employees in Bentonville, a robust IT economy has emerged to support the growth.

Smith also credits Innovate Arkansas, a state-funded initiative that has spurred the launch of more than 100 startup companies, and raised more than $265 million in private investment, public investment and federal grants. “There’s a lot of activity not only in Little Rock, but in northwest Arkansas, from Fayetteville to Bentonville. Much of it is centered around the universities; there’s just a lot of talent here,” said Smith.

Craig Guillot is a business writer based in New Orleans, La. His work has appeared in Wall Street Journal, Entrepreneur, CNNMoney.com and CNBC.com. You can read more about his work at www.craigdguillot.com.